Vietnam Investment

 Investment:

The 2005 Investment Law, together with its implementing decrees and circulars,

regulates investment in Vietnam, including investors’ rights and obligations, investment

incentives, state administration of investment activities and offshore investment.  The

Investment Law also provides for guarantees against the nationalization or confiscation

of assets and applies to both foreign and domestic investors.  The Investment Law

designates prohibited and restricted sectors for investment, but there are additional laws

that apply conditions to investments in sectors such as mining, public post, property

trading, banking, securities, and insurance.

 

The Investment Law provides for five main forms of direct foreign investment:  (1) 100

percent foreign-owned or domestic-owned companies; (2) joint ventures (JV) between

domestic and foreign investors; (3) business contracts (such as business cooperation

contracts (BCC), build-and-operate agreements (BOT and BTO) and build and transfer

contracts (BT)); (4) capital contribution for management of a company; and (5) merger

and acquisitions (M&A).  Foreign investors can invest indirectly by buying securities or

investing through financial intermediaries. 

 

Vietnam has gradually opened some sectors for foreign investment through M&A.  While

foreign investors are allowed to buy shares in some domestic companies without

limitation, examples where this has occurred are rare.  The ratio of total foreign

ownership permitted in a project depends on a number of factors, including Vietnam’s

international commitments, the economic sector in question, and the type of investor,

among others.  There are ownership limitations for certain companies listed on the

Vietnam stock exchange and service sectors.  Foreign ownership cannot exceed 49

percent of listed companies and 30 percent of listed companies in the financial sector.  A

foreign bank is allowed to establish a 100 percent foreign owned bank in Vietnam but

may only own up to 20 percent of a local commercial bank.  Individual foreign investors

are usually limited to 15 percent ownership, though a single foreign investor may

increase ownership to 20 percent through a strategic alliance with a local partner.

Investment Sectors

The Investment Law distinguishes four types of sectors:  (1) prohibited sectors; (2)

encouraged sectors; (3) conditional sectors applicable to both foreign and domestic

investors; and (4) conditional sectors applicable only to foreign investors. 

 

The list of sectors in which foreign investment is prohibited includes cases where the

investment would be detrimental to national defense, security and public interest, health,

and historical and cultural values.

The list of sectors in which investment is encouraged includes high-technology,

agriculture, labor-intensive industries (employing 5,000 or more employees),

infrastructure development, and projects located in remote and mountainous areas. 

The list of sectors in which investment is conditional applies to both foreign and domestic

investors and includes those having an impact on national defense, security, social order

and safety; culture, information, press and publishing; financial and banking, public health; entertainment services; real estate; survey, prospecting, exploration and

exploitation of natural resources; ecology and the environment; and education and

training.

The sectors where certain conditions are applicable to foreign investors only include

telecommunications, postal networks, ports and airports, and other sectors as per

Vietnam’s commitments under international and bilateral arrangements. 

 

Foreign investors have the right to sell, market, and distribute what they manufacture

locally, and to import goods needed for their investment projects and inputs directly

related to their production, provided this right is included in their investment license.

 

Foreign participation in distribution services, including commission agents, wholesale

and retail services, and franchising opened to fully foreign-owned businesses in 2009. 

Vietnam has excluded certain products from its WTO distribution services commitments,

including, rice, sugar, tobacco, crude and processed oil, pharmaceuticals, explosives,

news and magazines, precious metals and gemstones.  Distribution of alcohol, cement

and concrete, fertilizers, iron and steel, paper, tires, and audiovisual equipment opened

to foreign investors in 2010.

Taxation

Vietnam lowered corporate income tax rates from 28 to 25 percent in January 2009. 

Corporate income tax for extractive industries varies from 32 to 50 percent depending on

the project, and can be as low as 10 percent if an investment is made in selected priority

sectors and in remote areas.  Incentives are the same for both foreign invested and

domestic enterprises. 

 

Vietnam does not tax profits remitted by foreign-invested companies.  However,

companies are required to fulfill their local tax and financial obligations before remitting

profits overseas and are not permitted to accumulate losses.  A new personal income

tax regime placing Vietnamese and foreigners on the same tax rate schedule took effect

in January 2009.  The new law regulates all types of personal income, including income

previously subject to other laws such as income from individual businesses and property

sales.  The lowest and highest marginal tax rates are 5 percent and 35 percent,

respectively.  

Vietnam and the United States began discussions towards a bilateral agreement on the

avoidance of double taxation in December 2010.

Economic Analysis:

The economy of Vietnam is a developing planned economy and market economy. Since the mid-1980s, through the "Đổi Mới" reform period, Vietnam has made a shift from a highly centralized planned economy to a socialist-oriented market economy which use both directive and indicative planning (see Five-Year Plans of Vietnam). Over that period, the economy has experienced rapid growth. Nowadays, Vietnam is in a period of being integrated into the global economy. Almost all Vietnamese enterprises are SMEs. Vietnam has become a leading agricultural exporter and served as an attractive destination for foreign investment in Southeast Asia.

In 2011, the nominal GDP reached $121.6 billion, with nominal GDP per capita of $1328.60. According to a forecast in December 2005 by Goldman Sachs, Vietnamese economy will become the 35th largest economy in the world with nominal GDP of $ 436 billion and nominal GDP per capita of 4,357 USD by 2025. According to a forecast by the PricewaterhouseCoopers in 2008, Vietnam may be the fastest growing of emerging economies by 2025, with a potential annual growth rate of about 10% in real dollar terms, which would increase the size of the economy to 70% of the size of the UK economy by 2050.

Vietnam has been named among the Next Eleven and CIVETS countries � l
� �/� rmal>could be reduced further.  

 

• Investors often find poorly developed infrastructure, high start-up costs, arcane land

acquisition and transfer regulations and procedures, and a shortage of skilled

personnel.  

• Vietnam’s labor laws and implementation of those laws are not well developed;

international companies sometimes face difficulties with labor management issues.

• Lack of financial transparency and poor corporate disclosure standards add to the

challenges U.S. companies face in performing due diligence on potential partners

and clients.

Investment

Openness to Foreign Investment  

Vietnam encourages foreign investment as part of its development strategy, and the

Government of Vietnam (GVN) is committed to improving the country’s business and

investment climate.  The Investment Law of 2005 provides the legal framework for

foreign investment in Vietnam.

 

Vietnam became the 150th member of the World Trade Organization on January 11,

2007.  Vietnam's commitments in the WTO increase market access for exports of U.S.

goods and services and establish greater transparency in regulatory trade practices as

well as a more level playing field between Vietnamese and foreign companies.  Vietnam

undertook commitments on goods (tariffs, quotas and ceilings on agricultural subsidies)

and services (provisions of access to foreign service providers and related conditions),

and to implement agreements on intellectual  property (TRIPS), investment measures

(TRIMS), customs valuation, technical barriers to trade, sanitary and phytosanitary

measures, import licensing provisions, anti-dumping and countervailing measures, and

rules of origin.  Vietnam has made solid progress in implementing its bilateral and

international obligations; however, concerns remain in some areas, such as protection of

intellectual property rights (IPR) and effectiveness of the court/arbitration system.

 

The GVN holds regular "business forum" meetings with the private sector, including both

domestic and foreign businesses and business associations, to discuss issues of

importance to the private sector.  Foreign investors use these meetings to draw attention

to investment impediments in Vietnam.  These forums, together with frequent dialogues between GVN officials and foreign investors, have led to improved communication and

have allowed foreign investors to comment on and influence many legal and procedural

reforms.

 

Despite the GVN’s commitment to improving the country’s business and investment

climate, Vietnam is still transitioning from a centrally planned economy to a more marketoriented and private-sector based model.  As indicated by the following indices,

Vietnam’s business climate is generally  improving, but the country still faces

development challenges relevant for foreign  investors, for example:  poorly developed

infrastructure, underdeveloped and cumbersome legal and financial systems, an

unwieldy bureaucracy, non-transparent regulations, high start-up costs, arcane land

acquisition and transfer regulations and procedures, a shortage of skilled personnel, and

pervasive corruption.  Some companies have experienced delays in obtaining

investment licenses, and inconsistent licensing practices have been noted between

provinces.  Investors frequently face policy changes related to taxes, tariffs, and

administrative procedures, sometimes with little advance notice, making business

planning difficult.  Because Vietnam’s labor laws and implementation of those laws are

not well developed, companies sometimes face difficulties with labor management

issues.